Hitachi Ltd is making its biggest-ever acquisition by agreeing to purchase the power grid division of ABB Ltd, a deal that is aimed at turning the Japanese conglomerate into a top global provider of equipment for electricity networks.
Hitachi would acquire 80.1 percent of the business with an enterprise value of US$11 billion. ABB, which would own the remainder of the business, plans to return US$7.6 billion to US$7.8 billion through a share buyback or other measures, it said yesterday.
The sale of the business — which makes power transformers, long distance electricity-transmission systems and energy storage units — would shrink ABB’s revenue by about a quarter and leave the Swiss engineering giant more focused on robotics and automation.
For Hitachi, the move is part of chief executive officer Toshiaki Higashihara’s efforts to restructure the diversified company, which is vying to become one of the top grid companies in the world, according to a June presentation.
Shares of Hitachi yesterday fell 1 percent in Tokyo trading, valuing the company at about US$27 billion. The company would fund the purchase through funds on hand and loans.
ABB has an option to sell its 19.9 percent in the power grid three years after the deal is completed, the European company said.
About US$500 million in non-operating restructuring charges would be made over the next two years, it said.
With the sale of the power grids business, ABB would focus on four leading sectors and simplify its organizational structure as it increases efficiency, it said, adding that the firm would disclose more details at its fourth-quarter earnings announcement in February.
The acquisition would bolster Hitachi’s position in the growing power transmission and distribution sector, helping it to diversify away from its nuclear plant business. The company’s atomic reactor sales have dried up as the global industry is beset by overruns, heightened competition from natural gas and renewables, and stricter rules following the 2011 Fukushima Dai-ichi nuclear power incident.
Any agreement would add to the US$3.5 billion of announced acquisitions that Hitachi has been involved in over the past three years, according to data compiled by Bloomberg, with the biggest being last year’s US$1.25 billion purchase of units and assets from Accudyne Industries.
The deal is the latest major overseas transaction by a Japanese company as financing costs remain low. Takeda Pharmaceutical Co is on course to complete its US$62 billion takeover of Shire PLC after shareholders cleared the deal this month.
In October, KKR & Co’s Calsonic Kansei agreed to acquire car-parts maker Magneti Marelli from Fiat Chrysler Automobiles NV in a deal valued at 6.2 billion euros (US$7.02 billion).
Daikin Industries Ltd last month agreed to buy Austrian commercial refrigerator maker AHT Cooling Systems GmbH in a deal worth about US$1 billion.
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